This post is a continuation of the discussion we had about pricing in my last post.
pricing approaches
Even though to a consumer it may seem easy to set a price for a product, there are many different approaches to go about pricing a product.
To start, you have to choose an appropriate price level. This is just a ball park guess of the range you want the price of your product to be in. From there, you choose one of the four pricing approaches I will go over in the following paragraphs.
demand-oriented
Skimming pricing- Setting the highest initial price that customers really desiring the product are willing to pay.
Penetration pricing- Setting a low initial price on a new product to appeal immediately to the mass market.
Prestige pricing- Setting a high price so that quality and status-conscious customers will be attracted to the product and buy it.
Price lining- Setting a line of products made by a single company at a number of specific pricing points.
Odd-Even pricing- Setting prices a few dollars, or cents, under and even number.
Target pricing- Setting an estimated price that the consumer is believed to be willing to pay, and working backwards to adjust the price by looking at markups by retailers and wholesalers to determine the final price they will charge wholesalers for the product.
Bundle pricing- Setting a price for two or more products as a single package price.
Yield management pricing- Setting different prices to maximize revenue for a set amount of capacity at any given time.
cost-oriented
Standard markup pricing- Add a fixed percentage onto the cost of all of the items in a specific product class.
Cost-Plus pricing- Summing the total unit cost of providing a product or service and adding a specific amount to the cost to arrive at a price. Generally there are two forms... cost-plus percentage-of-cost pricing, which is a fixed percentage added to the total unit cost, and cost-plus fixed-fee pricing, which is when the supplier is reimbursed for all costs, no matter what they are, but can only receive a fixed fee as profit that is completely independent of the final cost of the project.
Experience curve pricing- Based on the learning effect. This means that the unit cost of the product declines by 10% to 30% each time a company's experience at producing and selling the product doubles.
profit-oriented
Target profit pricing- Setting an annual target of a specific dollar volume of profit.
Target return-on-sales pricing- Setting a typical price that will give the company a profit that is a specified percentage of the sales volume.
Target return-on-investment pricing- Setting prices to achieve the target ROI that the company has previously set for themselves.
competition-oriented
Customary pricing- Setting prices based on tradition, standardized channels of distribution, or other competitive factors.
Above-, At-, or Below-market pricing- Intentionally pricing above, at, or below the market price for a certain product.
Loss-Leader pricing- Setting the price purposely lower than the products customary price to attract attention to it.
Thanks for reading guys! My last post for the semester will be along shortly.. !
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